Quake Unlikely to Destabilize Japan Financial System

TOKYO - Bank of Japan Gov. Masaaki Shirakawa vowed Monday to closely monitor the impact of the March 11 earthquake and tsunami on Japan's economic and financial conditions, but said that the disaster is unlikely to destabilize the country's financial system.

“Given that financial firms have tried to improve net worth by increasing capital and internal reserves, and that the settlement system has been stable, the earthquake is not something that will threaten the stability of the nation's overall financial system,“ Shirakawa said at the opening of the central bank's quarterly branch managers' meeting.

“Still, it is necessary to carefully examine domestic financial and economic conditions, including in the affected areas, and their possible impact on the overall financial system,“ he added.

At the meeting, managers from 32 domestic branches and general managers based in the U.S. and Europe gather to discuss economic and financial conditions.

The comments come days after the central bank introduced a special lending facility that makes Y1 trillion worth of cheap funds available for banks in the affected areas, and also said it is considering accepting a broader range of collateral to make it easier for financial institutions to secure funds.

The bank's policy board also decided last month to ease monetary policy even further by doubling its asset-purchase program to Y10 trillion, while supplying ample liquidity to the money market amid growing concerns about the ability of banks to meet a surge in demand for funds from companies and households.

As for the overall economy, the BOJ chief reiterated “Japan's economy is under strong downward pressure, mainly on the production side, due to the effects of the earthquake disaster.“

But he expects the economy to eventually return to “a moderate recovery path“ as exports and domestic demand are expected to pick up on the back of improvements in overseas economies and post-quake reconstruction.

Market participants will now focus on the release of the bank's regional economic report, due 0530 GMT, for information on the quake impact in local areas.

“As economic conditions have rapidly changed since the earthquake, there will likely be significant downgrades in assessments in regional economies, especially in Tohoku (the northern region of Japan hit by the quake) and Kanto-Koshinetsu (eastern region of Japan including the Tokyo metropolitan area),“ said Yasunari Ueno, chief market economist at Mizuho Securities.

source : kompas.com